The Trend towards Globalization in the Austrian Economy: Corporate Citizenship as a New Challenge to Policymakers

The economic policy issue which is central in this article is as follows: Does welfare economics provide a convincing theoretical rationale for favoring local strategic ownership? If so, one has to look for theoretical concepts which do not directly involve the concepts of power and interest groups derived from public choice theory and political economy. Above all, this article emphasizes the importance of corporate citizenship for the attractiveness of a modern, competitive location of business activities. The typical characteristics of such a location are a closely interlinked system of flexible markets for human capital (managers, skilled labor), a core of manufacturing high in value-added with a periphery of producer-oriented services, a modern transport and communications infrastructure, efficient and practice-oriented educational and training facilities, efficient financial and capital markets with appropriate financial intermediaries (banks, insurance companies) and, above all, an above-average concentration of central property rights. These locational characteristics are the result of cumulative processes which are often closely related to the organizational transformations of firms into large corporations. There is empirical evidence to support the hypothesis that within business firms, departments with high value added and departments with high decision-making power and responsibility for investment decisions (e.g., top management, planning, research and development, sophisticated production units, etc.), as well as centers of competence of multinational firms will remain in the country of the parent company. To a high extent the parent companies of multinational firms in turn are based in the country which is home to the most important owners. For a region in which the headquarters of a company are located, this constellation results in a high overall economic potential with positive external effects, such as regarding skilled labor, research and development, as well as external corporate monitoring and controlling. This article also emphasizes that strategic corporate ownership and the associated monitoring function can best be exercized on the basis of the large-shareholder principle. Given the importance of imperfect market and information structures, large-shareholdership is considered the more efficient and competent form of external monitoring and screening of firms by their owners than dispersed ownership. In general, strategic owners or large shareholders solve the agency problem between owners and management more efficiently, because as a rule they are not only better informed, but also maintain a longer-term interest in the firm than small shareholders.